Regulation of Financial Services and Advice – recent experience from the Twin Peaks of Australia Dallas Booth Chief Executive Officer National Insurance Brokers Association of Australia

Overview The Australian market Regulation of financial services in Australia – twin peaks 2001 reforms GFC and beyond Current financial services reform agenda Some thoughts about the future

Some Key Concepts Australia: General Insurance South Africa Short Term Property and Casualty Market Superannuation = retirement savings

The Australian Intermediated General Insurance Market Total Premium Invoiced calendar 2015 AUD$18,508 million ZAR R 193,038 million (11/07/2016) Business placed with insurers in Australia AUD$15,406 million Business placed with Lloyd’s AUD$1,760 million Business placed with foreign insurers AUD$1,342 million

The Australian Market (2) Domestic insurance (home, contents, private motor vehicles, travel) mostly purchased direct from insurers or their agents Commercial insurance mostly purchased via intermediaries Intermediaries place around 50% of premiums written in Australia

Regulation of General Insurance Twin Peaks Prudential: Australian Prudential Regulation Authority Markets: Australian Securities and Investments Commission

Australian Prudential Regulation Authority - APRA Prudential regulator of banks, insurance companies, superannuation funds, private health insurers Mission: to ensure that, under all reasonable circumstances, financial promises made by institutions we supervise are met within a stable, efficient and competitive financial system

Australian Securities and Investments Commission - ASIC Regulates Australian companies, financial markets, financial services organisations and professionals who deal and advise in investments, superannuation, insurance, deposit taking and credit. Aims to ensure that Australia’s financial markets are fair, transparent, supported by confident and informed investors and consumers.

2001 Failure of HIH Insurance Company – Australia’s second largest general insurer Royal Commission into the failure of HIH Stronger powers for APRA Financial Services Reform Act passed by the Federal Parliament

Financial Services Reform Act Comprehensive reform package introducing similar requirements for all areas of financial services and advice Administered and regulated by ASIC Core requirements include conduct and disclosure education and training of advisers managing conflicts of interest dispute resolution (internal and external) Focus on personal advice to retail customers “One size fits all”

Global Financial Crisis and beyond Prudential: no Australian regulated banks or insurance companies failed, they remained strong, well capitalised and (by and large) profitable Markets: thousands of Australians lost billions of dollars of their savings, investments and retirement funds, with major concerns after a number of financial advice and investment companies failed

What happened? APRA had perfected the art of “prudential supervision” of its regulated entities, and made sure they were able to meet their obligations as and when they fell due ASIC clearly had challenges as the regulator of financial products, services and advice: a comprehensive regulatory regime failed to protect many people

Future of Financial Advice (FOFA) reforms: duty to act in the best interests of the client manage and avoid conflicts of interest many commission payments banned (carve out for general insurance commissions) Financial System Inquiry Review of ASIC Capability Major problems in life insurance advice

2016 – 2017: APRA Banks and key institutions to be “unquestionably strong” Strengthening of capital requirements for insurers Ongoing work with International Association of Insurance Supervisors (IAIS)

2016 – 2017: ASIC Regulation of life insurance commissions Higher standards for education, ethics and professionalism in financial advice (carve out for general insurance brokers) Greater powers for ASIC Introduction of “Treat the Customer Fairly” into Australian law (Also known as POG: Product Oversight and Governance)

The Future Heavy emphasis on avoidance of failure rather than cleaning up after the event: CULTURE Strong obligations on manufacturers and distributors to make sure the product operates FAIRLY in the hands of the client The big one: TECHNOLOGY robo-advice; block chain; start-ups and disrupters; big data; telematics; etc etc

The Future (2) I firmly believe – 1.The world of insurance will continue to innovate and change, and the PACE OF CHANGE will increase. 2.There will always be a strong need for competent, professional ADVICE!

Thank you for your attention.